Here's our summary of key events overnight that affect New Zealand, with news authorities seem to be losing control of some key policy positions.
Firstly however, all eyes will be on the RBNZ at 9 am and the signals we can glean from today's OCR review statement given the quite fast weakening of the New Zealand economy.
In other news, US durable goods orders other than for aircraft have came in weaker than expected. A +0.5% rise was expected for May after April's +1.9% gain. But in the end a -0.3% drop was posted disappointing markets. Compounding the issue, inventories are building faster than expected.
More positively, the American goods trade balance was slightly smaller in May than April but perhaps that is reflecting a gloomier outlook.
Also disappointing markets, pending home sales in the US also came in low, down -2.8% from the same month a year ago. That is five straight months that this metric has declined.
In China, even though official data shows earnings rising quickly at major enterprises, their stock market posted sharp losses yesterday with the Shanghai index down more than -1%. In Hong Kong, where many more Chinese companies are listed, they were down -1.8%. These are large selloffs and come as markets struggle to be positive in the face of the tariff tiff with the US.
However, official data may be understating the strength of the Chinese economy, according to China Beige Book. The picture of China's economy slowing in the second quarter is misleading, or even inaccurate, with retail sales and investment actually stronger than the official data show, they say. Current weakness in official data in May reflects not the current situation but weakness seen earlier this year and late last year. Similarly for investment, official statistics are lacking as they undercount retail spending, according to the private survey which collects anecdotal accounts similar to those in the US Federal Reserve Beige Book.
In Australia, there is also increasing talk that their central bank is getting sidelined in its influence on future interest rate direction. The RBA is determined to hold rates stable, but market forces are pushing rates - including mortgage rates - up.
The UST 10yr yield is down -5 bps today and now under 2.83%. The Chinese 10yr is at 3.59%, down -1 bp, while the New Zealand equivalent is now at 2.92%, also down -1 bp. The UST 2-10 yield curve is now just +32 bps and hasn't been this low since August 2007 when it was rising very fast, or June 20005 when it was sliding quickly. This recession-predicting signal is why markets are very skittish. And perhaps we should also start to keep an eye on the US overnight Federal Funds rate which seems to be rising a bit faster than the Fed policy makers would like.
Gold is down another -US$4 in New York to just US$1,254/oz. That is a new 2018 low.
Oil prices are still racing higher in the US, up by more than +US$2/bbl again today with the US price is now just on US$72.85/bbl. The Brent benchmark is up strongly as well at US$77.70/bbl. Our pump prices won't be able to avoid the consequences, especially as our currency is falling sharply too. In the past week, crude oil prices have risen almost +10% in NZ dollars. Since the end of March they are up +28%.
The Kiwi dollar will start today just 67.9 USc and down yet another -½c from this time yesterday. On the cross rates we are also lower at 92.4 AUc, and 58.7 euro cents. That pushes the TWI-5 down to 71.5 and its lowest level since November 2017. We should also note that the Chinese yuan is devaluing sharply against the US dollar. But not against currencies like the NZD. Essentially, the position of the greenback is a consequence of US policy, not Chinese policy, despite what the Americans claim.
Bitcoin is little changed since this time yesterday at US$6,116.
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37 Comments
Me? Wow! Oh double wow!! I never thought i would ever get to be grouped with such titans of intellect. I guess a broken clock is wrong 99.86% of the time, but to earn the privilege of being named in the company of those modern day philosophers and polymaths for those two times I have been right is truly humbling.
Unless it wasn’t a typo, in which case that really stings.
The weakness in emerging markets is the first sign of the credit cycle turning globally: MUFG's chief economist & head of economic research
https://www.bloomberg.com/news/audio/2018-06-27/em-is-first-sign-of-cre…
Bank Bloodbath Batters Stocks Below Key Support As Yield Curve Crashes
https://www.zerohedge.com/news/2018-06-27/bank-bloodbath-batters-stocks…
Asset prices divorced from Reality more than ever
https://macromon.wordpress.com/2018/06/25/asset-prices-divorced-from-ec…
skudiv, you once said here you would never make a good property speculator. It was a wise warning to your future self that late comers make the best bubble fodder ; https://www.interest.co.nz/property/56675/opinion-olly-newland-says-now…
In 2007, like many, you predicted deflation here; https://www.interest.co.nz/property/55608/opinion-david-whitburn-argues…
Now that you appear to have since indulged in property, prepare a contingency before it's too late buddy! Standing before you in plain sight are alarming global and local debt excesses and assets that have started declining.
The real collateral damage of the one in 50 year household credit bubble and resultant high property prices are the financially unsophisticated owner occupiers, particularly first home buyers, and upgraders who are paying high prices for houses in Auckland and maximising the amount of debt in order to finance their house purchase. They will be saddled with large amounts of debt relative to their income levels for many years. By financially unsophisticated, I am referring to those who do not understand the term housing credit bubble.
They are people progressing onto the next stage of their life journey - go to school, get a job, get married, buy a home, have a family, etc .
These are honest hard working people who have spent many years doing the right thing making financial sacrifices and saving for their deposit in order to buy a house. These are many of our friends and family, and they are unaware of the high risk of buying a house in Auckland at current price levels and under current conditions.
There is a high risk that these people could be making a poor investment and get no returns for many years, and could face negative equity for a period of years and take many years to get back into positive equity, let alone retrieve the full value of their initial house purchase deposit and principal payments made on their mortgage. If these people have a change of circumstances and are unable to maintain servicing of the debt, then they may be forced to realise those losses, resulting in the loss of their deposit and loan principal payments.
Restarting the journey to financial security can be difficult, given the emotional, psychological and financial stress the family experiences.
Just read the stories of those hard working financially unsophisticated owner occupiers who bought near the price peak, and taking on large amounts of debt and then got caught up in the GFC in Ireland, and the US.
Trade War? No. Saturation of Monetary Excess
https://www.dlacalle.com/en/trade-war-no-saturation-of-monetary-excess/
It’s an exceedingly weird and difficult concept, as in convention almost everyone talks as if there is actual currency in all this – there is not. The wholesale system does not operate on such platitudes and anachronistic arrangements that make for currency as it was always known. What happens are bank exchanges among, and only among, various forms of ledgered liabilities. When Brazilian companies need dollars to engage in foreign trade (on both sides, to buy and in reception during a sale) Brazilian banks source those “dollars” via the eurodollar market and then lend them internally, pocketing whatever spread they can find after whatever influence is acting wherever. That means the “dollars” they obtain are eurodollar bank liabilities typically of small duration – they are synthetically short the “dollar.”
http://www.alhambrapartners.com/2018/06/27/there-is-only-one-global-tra…
China’s Yuan Tumble Blindsides Traders, Spurs Worry Over Impact
https://www.bloomberg.com/news/articles/2018-06-27/china-s-yuan-tumble-…
Australian property addicted banks are becoming increasingly nervous here; https://www.bloomberg.com/graphics/2018-australia-consumer-debt/
Property addicts, keep your heads in the sand at your own peril.
Honestly, our debt levels arent quite as bloated as Aussie’s, but change references to Aus to nz and the articles would read exactly the same
For eg, “The exuberance got out of hand. Investors gorged on “interest-only loans” that required them to repay not even one cent of principal for up to five years. The frenzy for such loans peaked in June 2015, when they accounted for 46 percent of all new mortgages.” That’s us, right?
AU debt to GDP reads at 120%, NZ at 92%. As a % of disposable income, NZ is at 168%, AU at 200%. Different mix, same consequences! Interest only is the ultimate of bubble stimulus, much like 100% lending. What's done is done. Here comes the fallout. Although, for the time being, NZ banks appear to be still pushing interest only lending. As this sh-tstorm unfolds - for how long is the question.
Bobster, Is it time for a bit more Tony Alexander?
Have you been good!? Do you deserve a treat? Well here you go
When dear Ron says “motivated vendor”, I think that’s code for “riddled with cancer” or “addled with dementia”. By his own admission that’s the way he rolls......yuk. I am pretty sure “dying horribly” and “demented” made his list of the “fours Ds” of property investment
I'll admit, I felt a little guilty knowing I viewed this for free. There really should be a law against DGM's gaining access to such property porn - disgusting.
Notice while Fong's talking dirty, there's the chorus of a burglar alarm wailing in the background? Times are tough, just 83 views in six months - sad-sad-sad
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